News
25/09/26
Cop: Article 6 activity mounts but key gaps remain
Cop: Article 6 activity mounts but key gaps remain
London, 25 September (Argus) — Countries are increasingly engaging in the carbon
market mechanisms established under Article 6 of the Paris climate agreement.
But two years after its rulebook was agreed, the number of buyer countries
remains limited, developing nations hosting emissions-saving projects have
reservations about participating, and disagreements rumble on over some
underpinning standards, writes Victoria Hatherick The Article 6 rulebook was
eventually finalised at the UN Cop 29 climate conference in Baku, Azerbaijan, in
2024, nine years after negotiations began. But the promised centralised
UN-regulated carbon market under Article 6.4 — the Paris agreement crediting
mechanism (Pacm) — has not yet materialised, with its registry expected to
launch in the fourth quarter of this year. And only seven countries have so far
traded so-called internationally traded mitigation outcomes (Itmos) under the
Article 6.2 mechanism, according to UN Environment Programme (Unep) data, a
system which allows countries to exchange emissions savings bilaterally to be
counted towards their nationally determined contributions (NDCs) to the Paris
Agreement. There are so far 10 buyer countries under Article 6.2, Unep data
show. Japan has signed 32 agreements under the mechanism, followed by Singapore
at 28, Switzerland at 20, South Korea at 14 and Norway at nine. Norway recently
indicated its intention to deepen its engagement with Article 6 going forward.
"At the next Cop we want to contribute to building infrastructure, including
registries," deputy director-general of the Norwegian climate ministry's climate
change department Guri Storaas told delegates at the Nordic Climate Finance
Summit in Oslo earlier this month. The country also expects to sign more Article
6 agreements, she said. Article 6 is a "priority" for Norway because of its role
in reducing the risk of Norway not meeting its climate targets solely through
collaboration with the EU, and its cost effectiveness, Storaas said. And Norway
"wants to make it work", she said, which is why the country is deliberately
positioning itself as an early mover under the mechanism. It has set aside a
15bn Norwegian krone ($1.6bn) "buying envelope" for Article 6 credits. Norway's
bilateral agreement signed last year with Switzerland on carbon removals also
sends an important signal that Article 6 is not just relevant for developing
countries, Storaas said. Switzerland signed a similar agreement in May with
Sweden, which itself has a further six bilateral agreements. Sweden is hoping to
sign another Article 6 agreement by the end of the month, fund manager for the
Swedish Article 6 climate co-operation fund at the Global Green Growth Institute
Ash Sharma told delegates at the summit in Oslo. Singapore this month advanced
its tender for at least 12mn Itmos, following a first tender for 2.17mn Itmos
last year. Project host countries are higher in number. A total of 55 have
signed bilateral agreements under Article 6.2 across the Americas, Africa,
Europe, Australasia and Asia. Kenya and Ghana have signed the most, at five
each, followed by Zambia, Senegal, Mongolia and Indonesia with four each,
according to Unep data. And 58 countries are listed by Unep as having approved
activities under Pacm, led by Brazil with 92 activities, followed by Chile with
30 and Vietnam with 23. Hurdles to participation But project host countries must
strike a delicate balance between trading emissions savings to raise climate
finance without damaging their ability to meet their own NDCs, a factor that has
been limiting some countries' engagement with Article 6. Kenya did a "good job
standing up for its needs to meet its NDC" in the case of clean cookstove
developer Koko, Sharma said at the Oslo conference. The company shut down
earlier this year after failing to obtain a letter of authorisation from the
Kenyan government to sell credits generated by its projects internationally, a
result of the government's uncertainty about its capacity to retain sufficient
emissions reductions to meet its targets. Countries also need people engaging
with the mechanism full time, and not many have the capacity to do so, Charlotte
Streck of consultancy Climate Focus said at an online event this week. It is
therefore important for like-minded groups to come together to avoid being
overwhelmed by complexity, she said. Private sector on the sidelines
Private-sector interest in Article 6 has been dampened by the perceived
complexities of the mechanism, the head of special funds at international
financial institution the Nordic Environment Finance Corporation (Nefco), Dennis
Hamro-Drotz, told delegates at the conference in Oslo. They are engaging a bit
later than governments, he said. Nordic companies are more likely to participate
by exporting their technology solutions first, before becoming credit offtakers
later, Hamro-Drotz said. Nefco is "looking at re-engaging in carbon markets", he
added, having been involved in the Paris Agreement's predecessor the Kyoto
Protocol. Governments also stepped up first under the Kyoto Protocol, Sharma
said, but linking that framework's so-called certified emission reduction
credits with the EU emissions trading system brought lots of other actors into
the market. "I am sure we will see this again," he said. The European Commission
in July proposed using up to 260mn international credits underpinned by Article
6.4 standards over 2036-40 to count towards its 2040 climate target. But the
commission as it stands will not review whether there are sufficient
high-integrity credits available to justify the approach until 2033. This is
"way too late" to provide the necessary demand signals to the market,
International Emissions Trading Association international policy director Andrea
Bonzanni told Argus . Underpinning standards edge forward In the meantime,
parties to the Paris deal continue to disagree on the standards themselves. So
far only three methodologies governing project activities under Pacm have been
adopted, relating to flaring or use of landfill gas, N2O abatement from nitric
acid production, and electricity generation from renewable sources connected to
an electricity system. Experts tasked to work on the methodologies indicated
last week that they are sticking to their controversial decision to require
clean cooking activities to contribute some of the credits they generate to a
buffer for reversals, a debate that has held up agreement on clean cooking
standards. Scant progress on getting Pacm up and running has also left many in
the wider carbon credit market in limbo. Demand in the voluntary carbon market
has seen a marked shift lately to credits linked with compliance mechanisms,
after a series of environmental integrity concerns in recent years undermined
confidence in purely voluntary approaches. But developers hoping to set up
projects that will issue credits remain constricted by a lack of clarity on
which standards they should adhere to, and uncertainty as to whether countries
will give them the approval they need to sell generated units internationally.
The Article 6.4 supervisory body will meet in Germany in the first week of
October, where it is scheduled to discuss a range of issues including
methodologies. But debate on the mechanism's approach to certain activities is
likely to spill over once again into the UN climate conference, with Cop 31 to
be held in Antalya, Turkey in November. Send comments and request more
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